{"id":12833,"date":"2022-07-31T08:09:39","date_gmt":"2022-07-31T12:09:39","guid":{"rendered":"http:\/\/intramuralist.com\/?p=12833"},"modified":"2022-07-31T08:09:42","modified_gmt":"2022-07-31T12:09:42","slug":"whats-causing-inflation-let-me-count-thy-ways","status":"publish","type":"post","link":"https:\/\/intramuralist.com\/?p=12833","title":{"rendered":"what’s causing inflation? let me count thy ways…"},"content":{"rendered":"\n

With most public policy challenges, we tend toward simple explanations and blamecasting.  Such it is with inflation.  I am not a fan of President Biden, but I do not think rising prices are all his fault.  However, I do hold him and his administration responsible for their failure to assess the multiple contributing factors and address them to the extent they can.<\/p>\n\n\n\n

The basic principal at play is straightforward.  When supply exceeds demand, prices go down.  When demand exceeds supply, prices go up.  Let\u2019s explore:<\/p>\n\n\n\n

  1. Pandemic Response<\/strong> \u2013 When COVID-19 first hit in 2020, we didn\u2019t know what we were up against.  Afraid of the worst-case scenario, our public health officials drastically restricted economic activity across the board.  Many suppliers of goods and services either downsized or went out of business entirely.  Two years later, as consumers have unleashed pent up demand, the decimated supply chain is not able to keep up.  Furthermore, in response to the turmoil many employees have changed their attitudes about how much to work or even whether to return to work at all.  Our $23 trillion economy is integrated and complex.  It will take time for production capacity to get back to where it once was.  (In hindsight, we should have taken a focused prevention<\/a> approach to COVID-19, but hindsight is 20\/20.)<\/li><\/ol>\n\n\n\n
    1. Monetary Policy<\/strong> \u2013 A dollar is not a good in and of itself, but its value is determined by supply and demand just the same.  If there are too many dollars chasing too few goods, the value of a dollar will go down and it will take more of them to have the same purchasing power.  That\u2019s what Nobel laureate economist Milton Friedman meant when he said<\/a>, \u201cInflation is always and everywhere a monetary phenomenon.\u201d  When Joe Biden was campaigning for president he declared<\/a>, \u201cMilton Friedman isn\u2019t running the show anymore.\u201d  This was akin to suggesting gravity no longer exists because Isaac Newton isn\u2019t running the show anymore.  Sadly, Federal Reserve Chair Jerome Powell echoed this hubristic sentiment after Biden took office stating<\/a>, \u201cRight now M2,\u201d (the supply of money) \u201cdoes not really have important implications. It is something we have to unlearn I guess.\u201d  It wasn\u2019t so much that the Fed was asleep at the switch as inflation swelled.  They were well aware of the signals and willfully ignored them.<\/li><\/ol>\n\n\n\n
      1. Limiting Fossil Fuels<\/strong> \u2013 On Joe Biden\u2019s first day<\/a> in office, he withdrew the permit for the Keystone XL pipeline.  Furthermore, his administration suspended new oil and gas drilling permits.  His Energy Secretary, Jennifer Granholm famously laughed<\/a> when asked her plans to increase oil production in America.  To the President\u2019s credit, the Interior Department recently reversed course<\/a> slightly to allow limited drilling in Alaska and the Gulf of Mexico.  It will take a while, though, for those efforts to result in more supply, thus the reason for Biden\u2019s recent kowtowing to Saudi Arabia begging them to increase their production in the short term.  In addition, the financial industry is hampering the development of any new coal or natural gas power plants through its ESG score<\/a> scheme, thus raising the cost of electricity.  We can debate whether paying more for energy is worth emitting less CO2 into the atmosphere, but it is undeniable that energy is a key component to the production of most goods and so ESG is making most everything more expensive.<\/li><\/ol>\n\n\n\n
        1. War in Ukraine<\/strong> \u2013 The White House has coined the term \u201cPutin\u2019s Tax Hike\u201d to shift responsibility for inflation, but without question Russia\u2019s invasion of Ukraine has contributed to rising prices.  Aside from the general instability and threat of cutting off natural gas supplies to Europe, food supplies are at risk as well.  Ukraine is a major exporter<\/a> of commodities like wheat, corn, and sunflower oil.  We live in an interconnected world.  When the price of food goes up on the other side of the globe, it goes up here, too.<\/li><\/ol>\n\n\n\n
          1. The Jones Act<\/strong> \u2013 I\u2019ve seen this point made a few places online, but not enough, so I\u2019ll shine some light on it here.  In the aftermath of World War I, Congress passed and Woodrow Wilson signed the Merchant Marine Act of 1920, also known as the Jones Act<\/a>.  It requires that any domestic transport of goods from one U.S. port to another be carried out by ships built, owned, and operated in America.  Especially with our strapped supply chains, this protectionist regulation is unnecessarily limiting the transit of goods and making them more expensive.  The Jones Act is obsolete and should be repealed ASAP.<\/li><\/ol>\n\n\n\n

            There is no way to flip a switch and make inflation go away, yet there are things that could be done to slow it down.  Unfortunately, it seems we\u2019ll need a change of leadership in Washington before we see significant relief.<\/p>\n\n\n\n

            Respectfully\u2026<\/p>\n\n\n\n

            PJM<\/p>\n","protected":false},"excerpt":{"rendered":"

            With most public policy challenges, we tend toward simple explanations and blamecasting.  Such it is with inflation.  I am not a fan of President Biden, but I do not think rising prices are all his fault.  However, I do hold him and his administration responsible for their failure to assess the multiple contributing factors and … <\/p>\n

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